What is an IPO Lock-Up Period?

An IPO lock-up period is a period after an IPO during which investors can't sell their shares. It's usually one year, but it could be longer depending on the company and its market conditions.

The main purpose of having an IPO lock-up period is to allow new investors to buy shares at a discounted price before they begin trading publicly on exchanges like NASDAQ or NYSE. Since there are fewer buyers than sellers (and more demand than supply), if you want your share of this limited supply it pays off to wait until after your preferred offering date so that you can make sure that your investment isn't snapped up by someone else who wants it more than you do!

Why is there a lock-up period?

The lock-up period is intended to ensure that insiders do not sell their shares in the first few days of trading. It also prevents a panic sell-off, which could lead to an overbought market and a crash like we've seen recently with Facebook and Twitter. The second reason for the lock-up period is to ensure that companies have enough time to raise funds for future growth—and if they don't have it, then they won't be able to get through their IPO process successfully.

Locking in gains

A lock-up period is the period that investors are required to hold their shares before selling them. This can help prevent a massive sell-off of shares after the IPO, which would potentially cause a price drop and hurt other investors who did not participate in the initial offering.

For example, if you purchased shares at $1 per share and they were trading at $10 per share when they went on sale, then you would have made a 10% (1/10th) profit on your investment during this lock-up period.

Who are not eligible for the lock-up period?

The lock-up period is not applicable to the following entities:

●       Underwriters of the IPO

●       Selling shareholders (a company’s founders)

●       Employees of a company

The end of the lock-up period

The end of the lock-up period is a good time to buy shares if you're interested in investing. It's also when you can sell your shares if you need some cash, and at that point, it will be difficult to get them back into your portfolio.

Conclusion

As you can see, an IPO lock-up period is an important part of the process. It's important to understand what they are and how they work so that you can have a better time at the open market.

If you're planning on investing in an IPO, it's best to wait until after their lock-up period ends before making your decision. This way there won't be any surprises! If you are looking for making investments in IPOs, better to go with a trusted broker such as Goodwill. They are the top equity broker in India. Goodwill provides their clients the best equity trading platform in India, along with the lowest brokerage charges. Sign up today and start trading the same day!

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